Are the predictions for Lake Flower Spa and Resort too rosy? Not rosy enough? Is it viable?

August 23, 2014

SARANAC LAKE - Supporters of the proposed Lake Flower Spa and Resort say it could become a much-needed economic driver for the community.

Until now, however, they haven't had the numbers to back that up.

Lake Flower Lodging LLC, the company behind the proposed 93-room, four-story upscale hotel, recently submitted an "Economic and Community Impact" summary to the village and the state Adirondack Park Agency. It says the hotel would create 71 new, year-round jobs, generate $3.87 million in new spending, $309,000 in sales tax revenue, $58,000 in bed tax receipts and $263,000 in property tax revenue.

Article Photos

Developers of the proposed Lake Flower Spa and Resort, an image of which is seen here from the site of the Saranac Lake Winter Carnival Ice Palace, say the project would generate $3.87 million in new spending in the region.(Image — Lake Flower Lodging)

Economic predictions for a project like this are often rosy, and the developer withdrew an early set of numbers in July after acknowledging that they were unrealistic. A review of this latest version of the impact study, conducted by the Enterprise in consultation with local hotel owners and tourism experts, found some skepticism about Lake Flower Lodging's new estimates. But those experts also said that some of the project's assumptions appeared sound.

The Enterprise's analysis also found that the company's data told only one part of the story. There are other economic questions surrounding the proposed hotel that appear harder to quantify. Among them: Is a high-end hotel feasible in Saranac Lake, and what impact could the influx of modern hotel rooms have on other hotels and motels in the community?

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Job creation

Lake Flower Lodging's economic summary says the project would create 71 full-time jobs at its opening, which includes hotel, restaurant, spa and banquet center employees. Another 116 jobs would be created from the hotel's construction.

"Additionally, there will be many seasonal, part-time, and/or 'on-call' positions available to aid with large events or high-traffic seasons," the summary says.

The average annual wage for all positions was listed at $24,000.

The newspaper asked several hotel owners and operators, who didn't want to be named in this story, if they thought the 93-room hotel, with amenities like have been proposed, would create that many full-time jobs. Several thought the number was too high.

"There's no way," one owner said.

Another hotel owner, whose property has similar amenities, nearly twice as many rooms and roughly 80 full-time workers, agreed.

"I bet it will probably be closer to the high 50s or low 60s when it's all said and done," the owner said.

The business manager of another area hotel thought Lake Flower Lodging's full-time employment estimate was on the low side.

"It depends on the level of service they're going to provide," he said. "But for what they're stating that they want to be, I would say that number is conservative."

The experts said the salary estimate of $24,000 for full-time employees was average for the area. A bigger problem, one hotel owner said, will be finding workers to fill all the hotel's positions.

"It's very difficult, especially lately, to find the full-time, year-round help," the owner said. "If you get somebody to put in an application, you're excited. And I know the other hotels are in a similar situation."

Asked about staffing at a planning board meeting in December, developer Chris LaBarge said a lot of people who work at hotels in Lake Placid live out of town. He said, "there's a fair amount of unemployed people in Franklin County" who could work at his proposed hotel.

LaBarge has said he wants the hotel to be an upscale, four-diamond resort. Some local residents and several of the people the Enterprise consulted for this story have questioned whether such a high-end hotel in Saranac lake would be viable.

"I personally would rather own the Hampton Inn in Lake Placid than that one there," one real estate expert said. "It's an established market and right in the middle of everything. My guess is a high-end hotel in Lake Placid is going to be more in demand than one in Saranac Lake. It's a lot harder, because he's relying on overflow (from Lake Placid) in many cases."

James McKenna, CEO of the Lake Placid-based Regional Office of Sustainable Tourism, countered that he thinks there is a market in the area for more upscale lodging.

"What we've seen is that the largest occupancy gain in this region has been at the higher-end properties in the last five years," he said.

Speaking at Tuesday night's village Planning Board meeting, LaBarge said there has been a feasibility study of the proposed hotel, but he admitted there are some unknowns about the local market.

"The reality is here in Saranac Lake, it's a bit of an undefined market," LaBarge said. "Eight, nine miles down the road, Lake Placid is a well-defined market. It's much easier to develop a feasibility study and have confidence that the project is going to be viable. Here in Saranac Lake, you have to estimate low in terms of your occupancy. You've got June through October and then you've got January to March when you have an opportunity for rooms, and then the rest of the year the question is, are you going to make it? It's the capacity at those times of the years that are critical to drive occupancy and rate."

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Room influx

The Lake Flower Spa and Resort isn't the only hotel project pending in the village. The Hotel Saranac is also undergoing an extensive restoration that will bring its 80 rooms up to modern standards and convert the former Paul Smith's College Church Street dormitory into another 20 larger rooms. Some people think the influx of all these new, modern rooms to the Saranac Lake market will take customers away from the village's other hotels and motels.

"If anything, people will stay on the water and in a brand new place before they stay in the smaller places, so the other ones will probably see more of an effect," another person said.

McKenna, however, said he thinks there's enough business to go around.

"I think there's pent-up demand for current lodging facilities," he said. "Is it going to affect some occupancies? It probably will. But overall, I think the potential markets that we have for our region are greater than the current supply of current amenities we have."

Last year, the Hampton Inn opened and added nearly 100 rooms to the market, but the county still saw an increase in occupancy, McKenna said.

The company's first economic summary, submitted in early July, estimated the hotel project would generate more than $5.8 million in net new spending in the region per year. That figure was based in part on numbers drawn from a 2013 Leisure Travel Study for Essex County conducted by ROOST.

However, that figure was later scaled back because it used the wrong data. When asked about the mistakes on July 24, LaBarge told the Enterprise he was already taking another look at it.

"I've got somebody reviewing that on my behalf to make sure everything is accurate and it's the final document we're going to go with," he said.

The new estimate of $3.87 million in spending was described as a "highly conservative projection" covering only the overnight visitor stays associated with the project.

"New spending associated with day trips and extended stays as a result of the restaurant, waterfront amenities, spa and banquet facilities will also contribute to increased visitor spending in the region," the summary reads.

Assumptions

In the revised analysis, the company says it assumed 2.9 visitors per unit and 50 percent occupancy to calculate visitor days to the hotel. Are those accurate assumptions?

One local expert in the hospitality industry who is familiar with these kinds of studies said an average of 2.9 occupants per room is too high.

"In today's day and age, that's not going to exceed 2, and it's probably more in the 1.8 range," he said.

The American Hotel and Lodging Association, in its annual reports on the lodging industry in the U.S., says the typical leisure room stay is by two adults.

What about the expected 50 percent occupancy rate? Some local tourism officials and hotel owners said they think it's realistic.

"Based upon what we do, yeah, I think that's reasonable," one hotel owner said.

Two other people, however, said 50 percent occupancy is too high, at least in the hotel's first year of operation.

"That's a pretty ambitious number because usually your curve on a hotel, in the first year you're building base occupancy," one person said. "In the second year, 50-plus percent makes more sense to me."

Others questioned Lake Flower Lodging's use of the ROOST study, which largely reflects the Lake Placid market, in making predictions about the hotel's economics.

"I don't know personally that it would be fair to use Essex (County) impact numbers in Saranac Lake," a local tourism expert said. "In Lake Placid, you have a lot of high-end properties, resorts that are selling rooms literally for $1,000 a night. When you look at a spending profile for Essex County, because of Lake Placid, one would have to say that's on the upper tier."

Another person familiar with the ROOST study said it would be a stretch to extrapolate some of its numbers like Lake Flower Lodging did.

"I'm not a statistician, but you start to lose some validity there," the person said. "The more you parse it out into things that they're not saying, you add more instability to it."

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Tax revenue

Lake Flower Lodging used the estimate of $3.87 million in spending to project that the hotel, based on the county's 8 percent sales tax rate, would generate $309,600 in new sales tax revenue. The company says that represents "only a portion of the project revenue."

The company also estimated that the hotel would generate, based on the county's 3 percent bed tax, a minimum of $58,050 in bed tax revenue "to help further promote the Saranac Lake area and region." That number is based on the assumption that half of the $3.87 million in spending is hotel revenue.

As for potential property tax revenue, the five parcels involved with the project currently generate a combined $55,000 for the local municipalities. When construction of the hotel is completed, Lake Flower Lodging says the properties would create $263,000 in property tax revenue, based on current tax rates and an "estimated assessment" of $10.5 million.

The company says the $10.5 million assessment is based on "a review of current assessment and property taxes, comparison hotels in the Lake Placid area and a discussion with town assessors."

The Enterprise reviewed the assessed value of other area hotels and contacted several local assessors and real estate appraisers who are familiar with the area's hotel market. They each said the $10.5 million figure didn't sound unreasonable for a waterfront hotel in Saranac Lake with amenities like those that have been proposed. One said he thought the proposed assessment was about right, if not a little on the high side.

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Does money matter?

The planning board's review has focused largely on the size, height and potential traffic and pedestrian impacts of the hotel. Should its potential economic benefits also factor into the decision? Yes, according to the village's planned unit development district law, which is guiding the board's review. One of the law's standards deals with community benefits and asks specifically whether the PUDD "has the potential to provide substantial economic, social, environmental, open space and other benefits to the village."

"I think the PUDD law provides that discretion, but (the economics) are harder to quantify and compare than some of the more tangible, site-based considerations," said planning board Chairwoman Leslie Karasin. "It's not that it's not relevant, it's just a harder calculation to make."